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Modeling Organizational Innovation Capability: a Knowledge-Based Approach

Antonio Lerro * Centre for Value Management DAPIT, University of Basilicata, Italy * Corresponding author

Roberto Linzalone Centre for Value Management DAPIT, University of Basilicata, Italy

Giovanni Schiuma Centre for Value Management DAPIT, University of Basilicata, Italy Centre for Business Performance, Cranfield School of Management, UK

Abstract This paper presents a knowledge-based conceptual model for the strategic

management of innovation capability within organizations. It supports

interpretation and analysis of the mechanisms of the organizational

innovation processes and definition of managerial actions, programs and

projects according to a knowledge perspective. This model is, then,

operationalized to investigate the change management program of a leading

italian home furniture company and to generate new insights into the nature

of organizational innovation according to a knowledge-based approach.

Keywords – innovation capability; innovation sources; knowledge assets.

Paper type – Academic Research Paper

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1 Introduction The emergence of the knowledge economy, intense global competition and

considerable technological advance has seen innovation become increasingly

central to business competitiveness. As companies become increasingly focused

on innovation, they must systematically invest and nurture innovation capabilities,

from which they execute effective innovation processes, leading to innovations in

new product, services and processes, and superior business performance results

(Lawson and Samson, 2001; Subramaniam and Youndt, 2005). This determined

a renewed attention about knowledge resources as fundamental factors for best

enhance and support innovation capabilities, maintenance of competitive

strenght, and ultimately, value creation dynamics (Marr and Schiuma, 2001; Marr

et al., 2004; Schiuma et al., 2008). Despite the number of theoretical

contributions on the strategic importance as well as the role of knowledge

resources as key value-drivers for companies’ innovation dynamics and value

creation, there is still a need for a better understanding of the approaches for the

identification, development and deployment of knowledge resources for the

improvement of innovation performance and then company’s competitiveness

(Subramaniam and Youndt, 2005). The principal objective of this research is to

present a theoretically derived and empirically developed Intellectual Capital-

based conceptual model for the strategic management of innovation within

organizations. In particular, the paper provides the Innovation Capability Model

as managerial model to support interpretation and analysis of the dynamics of

the organizational innovation processes and definition of managerial actions,

programs and projects according to a knowledge perspective. This model is,

then, operationalized in order to explore whether or not this conceptualization

contributes to generating new insights into the nature of organizational

innovation. Specifically, it is suggested that one way of moving toward new

insights and more generalisable understanding of the innovation is through a

holistic conceptualization based on five pillars: strategy, innovation sources,

innovation capacity, innovation processes and innovation results. The framework

is deliberately applied exclusively in an Italian leading company operating in the

sofa furniture industry, specifically the Natuzzi Group. The paper is structured as

follows. Second section addresses the theoretical background of innovation

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management. Third section presents the Innovation Capacity Model and its main

pillars and detailed components. Finally, in the fourth section, the application of

the Innovation Capacity Model is investigated by the analysis of a case example

developed in Natuzzi Group.

2 Innovation: an overview

Various theoretical perspectives have been employed in efforts to understand

innovation as it happens across the full range of organizational levels. Scholars

of the rational and purposive view argued that innovation is a problem-driven

response to declining organizational performance or to the fear of future decline

(Bolton, 1993). Similarly, Nelson and Winter’s (1982) evolutionary view is

purposive, in which the fundamental mechanisms are the search for better

techniques and the selection of successful innovations by the market (Ruttan,

1997). Other perspectives include the population ecology perspective (Hannan

and Freeman, 1984), general systems (von Bertalanffy, 1962) and contingency

theory (Burns and Stalker, 1961). Schumpeter’s (1934) view of innovation was

broad. He proposed a typology of organizational innovation arranged under five

categories: new goods or modified existing ones, new processes, new markets,

new sources of raw material supply and the creation of new types of industrial

organization. Newness is conceptualized in several different ways in the literature

(Coopey et al., 1998; Van de Ven, 1986; Zaltman et al., 1973) and traditionally is

focalized on the distinction between radical or incremental innovation (Backer

and Whisler, 1973; McAdam and McClelland, 2002)

Dougherty (1992) conceives of innovation as the creation and exploitation of new

and existing knowledge that links market and technological possibilities.

Knowledge helps organizations achieve these objectives, as opportunities get

noticed and exploited because of asymmetries in knowledge across

organizations. Not surprisingly, the process of innovation is commonly equated

with an ongoing pursuit of harnessing new and unique knowledge (Nonaka and

Takeuchi, 1995). A critical portion of the knowledge and skills required for

innovation resides with and is used by individuals. The complexity of many

modern innovations, however, necessitates a pooling and integration of multiple

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strands of this knowledge. Thus, organizations accumulate, codify and store

individual knowledge in manuals, databases and patents for collective current

and future use and establish robust structures, systems and processes to

streamline individual inputs into steady streams of innovative outcomes (Cooper,

2001).

In its broadest sense, then, innovation is about the creation and implementation

of a new idea in a social context with the purpose of delivering benefits. West

and Farr’s (1990, p.9) definition succinctly captures all these ideas, defining

innovation “the intentional introduction and application within a role, group or

organization of ideas, processes, products or procedures, new to the relevant

unit of adoption, designed to significantly benefit the individual, the group,

organization or wider society”.

There is a range of models – conceptual and empirical – that attempt to

encapsulate some of the complexities of innovations. They derive from diverse

research streams and reflect different theoretical perspectives. Commonly, there

is the tendency to adopt a view of innovating as consisting of a series of inputs

which is converted by a process to deliver a series of outputs (Wolfe, 1994).

Taking and expanding upon Wolfe’s categorization and drawing upon the various

approaches in innovation research, considering the lack in the literature of a

comprehensive but parsimonious framework capable of facilitating cumulative

research, a holistic conceptualization based on five pillars – strategy, innovation

sources, innovation capacity, innovation processes and innovation results – is

developed. This conceptualization, called Innovation Capability Model, try to

support interpretation and analysis of the dynamics of the organizational

innovation capability and definition of managerial actions, programs and projects

according to a knowledge perspective.

3 The Innovation Capability Model

High performing innovators do not see innovation as just a user of scarce

resources for uncertain outcomes, but rather as a mechanism for creating new

knowledge and competitive advantage. Different elements, therefore, need to be

managed integratively. The literature on innovation management contains

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numerous framework examining the technical innovation audit (Chiesa et al.,

1996), the new product development process (Clark and Fujimoto, 1991), R&D

management and technology acquisition process (Roussel et al., 1991),

implementation of production innovations (Voss, 1988). There have, however,

been few attempts using a knowledge-based approach to generate a holistic

model of organizational innovation capability. This lack drove the

conceptualization of the Innovation Capability Model as shown in Figure 1.

Figure 1. The Innovation Capability Model

The model assumes that company’s performance is based on the results of the

innovation which, in turn, is primarily dependent of the innovation sources.

Innovation capability itself, then, is not a separately identifiable construct. The

capability is composed of reinforcing practices and processes within the firm

according to the innovation sources available. These sources are the key

elements for stimulating, measuring and reinforcing innovation mechanisms. We

note that there is no clear agreement of what the real variables of innovation

capability might be. A holistic model of innovation capability will thus attract

debate about the categorization of pillars and elements, but it is a necessary step

in order to facilitate analysis and construction of an innovative framework. The

elements making up an innovation capability are grouped into major pillars.

These pillars and elements have been built up from the literature on innovation

STRATEGY

INNOVATION SOURCES

Intellectual Capital Resources

INNOVATION CAPACITY

Capabilities

INNOVATION PROCESSES

Translating Innovation Capacity into Actions

INNOVATION RESULTS

Company’s PERFORMANCE

VALUE CREATED for COMPANY’S

STAKEHOLDERS

MANAGERIAL ACTIONS &TOOLS

INNOVATION PERFORMANCE

INNOVATION OUTPUT

Other resources

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management as well as best practice models and specific studies of innovative

firms.

The following pillars are proposed to exist within innovative companies. They are

strategy, innovation sources, innovation capacity, innovation processes and

innovation results. The innovation capability will lead to continuous products,

process and systems innovation. The stronger the innovation capability

possessed by a company, the more effective will be its performance and value

creation The core pillars of innovation capability, as well as their major elements,

are discussed in detail in the next sections.

3.1 Strategy The link between strategy and innovation is important to effective innovation

management. Successful innovation requires a clear articulation of a common

vision and the company expression of the strategic direction. This is a critical

step in institutionalizing innovation, creating a vision, a target which if achieved

will create products that outperform and provide a distinct market position. The

success of companies breaking the rules of their industries through innovation

and become a dominant player has been well-documented (Hamel, 1998; Kim

and Mauborgne, 1999; Markides, 1997). These companies are able to stimulate

demand, expand existing markets and create new ones through an accessible

and competitive market prices.

3.2. Innovation sources

Competitive pressure and the rapid growth of ICT have forced companies to

review the sources of their innovation performance and value creation dynamics.

This has resulted in a focus on both innovation and knowledge, and the concept

of knowledge has received a deal of attention in recent years. The concept of

knowledge has emerged a strategically significant resource for the firm (Grant,

1996; Mintzberg et al., 1976) and has been asserted to play a significant role in

the innovation process (Song and Montoya-Weiss, 1998). Indeed, the complexity

of skills and processes needed in the development of today’s products and

services requires that managers attend the processes of managing knowledge

combination as the very basis of innovation (Leonard and Sensiper, 1998).

Mingers (1990) conceptualized innovation as both an exploration and synthesis

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involving a process of the combination and exchange of knowledge (Nahapiet

and Ghoshal, 1998). It has also highlighted that firms are encouraged to innovate

by searching out new resources or finding new ways of using existing resources.

Sometimes, innovation consists of a recombination of knowledge and other

resources that were previously in existence (Cooper, 1988). Grant (1996)

suggests that organizations accumulate knowledge over time, learning from their

members. Organizational knowledge is created through the interactions of

individuals. Thus, moving towards a knowledge-based approach, it is possible to

analyze the organizational resources in terms of knowledge embodied by them.

In particular, according to a knowledge-based approach, and getting over the

distinction between the tangible or intangible nature of the resources, we think

the real important thing that provides strategic relevance to all the resources is

the role played by themselves as cognitive components, or, in other terms, as

entities embodying knowledge qualifying the organization to perform innovation,

business activities and to gain competitive advantages. It derives that the

criterion to define and evaluate the value of a resource, both tangible or

intangible, resides into the cognitive role that it assumes, or, in other words, into

the level of relevance to define and build organizational competences. The

adoption of a knowledge-based approach lets, then, to introduce the concept of

knowledge asset as any organization resource made of or incorporating

knowledge which provides an ability to carry out a process or an activity aimed to

create and/or deliver innovation and value (Marr et al., 2004), as well as to define

Intellectual Capital (IC) as the group of knowledge assets that are attributed to an

organization and most significantly drive organizational innovation and value

creation mechanisms for targeted key stakeholders. Then, according to a

knowledge-based approach, the management attention have to move then from

the analysis and the evaluation of the tangible and intangible resources towards

an analysis of the resources embodying knowledge and at the basis of the

innovation and value creation dynamics of the organizations. This determines a

distinction of resources into two categories: 1) resources made of or

incorporating knowledge, and then defined knowledge assets, which together

constitute the Intellectual Capital (IC) of an organization; and 2) complementary

resources.

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IC is defined according to the Knoware Tree framework (Schiuma et al., 2005;

2008). The Knoware Tree adopts an interpretation of the IC based on the

distinction of two main components: the knowledge assets related to the

stakeholders of the organization – called Stakeholder Knoware – and the

knowledge assets related to the tangible and intangible infrastructures of the

organization – called Structural Knoware. This distinction reflects the two main

components of all organizational systems: its actors, both internal and external,

and its structural components, i.e. all those elements at the basis of the

processes. Both the main components are further on divided in other sub-

components: Human Capital and Relational Capital for the Stakeholders

Knoware and Organizational Capital and Social Capital for the Structural

Knoware. Fundamentally, complementary resources can be defined ‘in negative’

as the resources which are not made or incorporating knowledge (Teece et al.,

1997). However, it does not imply absolutely that they are less important. For

purposes of this research, then, complementary resources can be considered

financial assets, such as cash, raised financial capital, financial investments and

all those assets, tangible or intangible in nature, such as buildings, land and

other companies’ properties unable to incorporate or provide knowledge. The

challenge for a researcher and for management is then to appropriately identify

the necessary resources in order to put forth testable empirical assertions drawn

from relevant theory. Thus, the following section reviews those IC-based

resources that the literature and the practice proposes influence innovation.

IC-based innovation sources The Human Capital (HC) comprises essentially the know-how characterizing

the different actors operating within the organizations driving innovation

dynamics. From the literature analysis, it raises that the most important HC’s

components are: knowledge, know-how, expertise, skills, problem solving

and teamwork capability, formal training and learning capacity, education,

leadership and management ability, ability of people to manage change

(Carlucci and Schiuma, 2006). Those resources and assets define the value

of the firm, from a static point of view, as well as represent key critical

operative factors to support and drive innovation dynamics over the time.

Particulary, to this last regard, HC theorists stress that HC contributes to

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create value because an increase in worker skills, knowledge, and abilities

most likely translates into increased organisational innovation and, then,

performance (Becker, 1964). When people possess high levels of knowledge

and skills they generate new ideas and techniques that can be embodied in

production equipment and processes; they initiate changes in production and

service delivery methods; and they improve the links between employees,

managers, and customers. HC doesn’t operate in isolation but it is integrated

with other forms of resources and assets. It is argued that an organisation

has to leverage the skills and capabilities of its employees by encouraging

individual and organisational learning as well as creating a supportive

environment where knowledge can be created, shared and applied. Such a

consideration leads to a crucial issue: the development and the effective

utilisation for an organisation of its HC depend on investment in people skills

and expertise, but also on right relationships among people and a supportive

structure.

The Relational Capital basically indicates the group of the knowledge

resources linked to the relationships characterizing the organizational

system. This includes fundamentally relationships established and

maintained among stakeholders for innovation dynamics and the value

creation of the organizations. It represents a collective effort of the know-how

of many stakeholders in a variety of contexts and situations. The role of this

capital to innovation capability and, then, value creation is mainly related to

the fact this specific form of sources is a primary mean through which

organisations import knowledge enhancing company’s innovation capability:

first, as new external knowledge comes into the firm, it can be combined with

the firm's existing internal knowledge. Second, comparing new external and

existing internal knowledge can highlight inconsistencies that can identify

weaknesses in the firm's existing internal knowledge. The kind of knowledge

a firm retains internally determines the benefits that a firm can derive from

relational capital.

The Organizational Capital includes all those assets tangible and intangible

in nature relevant for the development, acquisition, management and

diffusion of knowledge as well as all the components linked to structural

features of an organization that enable a firm to perform its business

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processes. According to Bontis (1998), Carlucci and Schiuma (2006) and

Youndt et al. (2004), organizational capital mainly includes: routines,

procedures and rules; artefacts embedding knowledge like patents and

licenses; organisational and reporting structures; operative systems;

procedures and task design; information and communication infrastructures;

resource acquisition, development and allocation systems; decision

processes and information flows; incentives, controls and performance

measurement systems; organisational culture, value and leaderships; ways

of doing business; and organisation processes. The role of this capital in

innovation dynamics and value creation is mainly related to the fact that it is

a primary means through which an organisation can rapidly learn, manage

and apply knowledge. In this regard it is stated that organizational capital

reduces lead times between learning and knowledge sharing and, therefore,

allows to firm to gain a sustained, collective growth. Organizational capital is

the essential drivers in converting knowledge embedded in individuals and

organisation into value. Moreover this form of capital represents the essential

substratum for the growth and right exploitation both of human capital and

relational capital.

Finally, Social Capital essentially comprises the assets having soft nature

and contributing order, stability and quality to an organization. Leana and

Van Buren III (1999) sustain that there are four primary ways in which social

capital can lead to beneficial innovation dynamics and company’s outcomes:

it justifies individual commitment to the collective good, facilitates a more

flexible work organisation, serves as a mechanism for managing collective

action, and facilitates the development of intellectual capital in the firm.

Nahapiet and Ghoshal (1998) argue social capital increases the efficiency of

action. For example, networks of social relations, particularly those

characterised by weak ties or structural holes increase the efficiency of

information diffusion through minimising redundancy. Furthermore, social

capital encourages cooperative behaviour, thereby facilitating the

development of new forms of association and innovative organisation. The

concept, therefore, is central to the understanding of institutional dynamics,

innovation, and value creation.

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3.3 Innovation capacity In our model, innovation resources nurture innovation capability. The innovation

capability enables integration and transformation of resources to develop

potential innovation that can be transferred into the companies’ processes

through the leverage of the their knowledge base (Cohen and Levinthal, 1990).

An innovation capability is therefore defined as the ability to continuously

transform knowledge and ideas into new products, processes and systems for

the benefits of the company and its stakeholders (Lawson and Samson, 2001), or

in other terms, the company’s ability to combine, integrate and exploit its tangible

and intangible resources, to create and deliver products and services. The cross-

functional integration and co-ordination of organisational capabilities are at basis

of “innovation capacity”. In fact, in line with Lawson and Samson (2001)

statements, the “innovation capacity” can be interpreted as the organizational

ability to mould, integrate and manage multiple resources and capabilities of the

firm to successfully stimulate innovation.

3.4 Innovation processes

Traditionally, process research addresses the nature of the innovation process,

how and why innovations emerge and grow. In our model, process has come to

be conceived as a temporal, path-dependent phenomenon (King, 1992; Koput,

1997 Schroeder et al., 1989) that is a collection of tasks or activities and an

integration and exploitation of organizational capabilities which together

transform inputs into outputs. This allows innovative companies to produce new

products and services in a quality-focused, efficient and responsive manner.

Innovation is clearly not just about technical research and development, nor it is

something that can be successfully performed in an innovation department or a

separate piece of an organization. Rather, for those who did it well, it pervades

all aspects of an organization’s existence, from the core value system to the

measures and behaviors that are manifested on a daily basis. Successful

innovation requires an optimal overall formal business structure (Burgelman and

Maidique, 1988). Unless this structure and its resulting processes are conducive

to a favorable environment, other components of the innovation systems are

unlikely to succeed. The nature of the innovation processes has been shown to

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be affected by a range of factors such as organizational structure (Burns and

Stalker, 1961; Daft, 1978; Holbek, 1988), environmental factors (Tidd, 2001),

technology management. As businesses grow, there is a tendency to add layers,

becoming more mechanistic and institutionalizing bureaucracy (Kanter, 1983).

High performing companies motivate and enable innovative behaviors by

creating permeable business boundaries helping break down the barriers

separating functions, product groups and businesses (Ashkenas, 1998; Maira

and Thomas, 1998). Also environmental factors affect innovation processes

through team size, group climate, heterogeneity, vision, leadership style and

group cohesiveness (Agrell and Gustafson, 1994). Finally, the management of

technology is crucial for all kinds of organizations. Innovative companies are able

to effectively link their core technology strategies with the innovation strategy and

business strategy. This alignment generates a powerful mechanism for

competitive advantage.

3.5 Innovation outputs and company’s value creation It is not difficult to recognize the contribution that innovation makes to competitive

advantage (Tidd, 2001). This output has generally been construed in terms of

financial, market or organizational performance. Despite this, few studies have

focused on the performance of the process of innovating. There is a trend in

these studies to treat innovations as unitary phenomena, such that it becomes

difficult to distinguish between the innovation and the performance. Short term

financial indicators can undervalue innovation; number of patents, measures of

market growth and so forth do not tell the whole story. The measures might

identify some organizations as innovative but they do not tell anything about how

they do it, or from where the innovations. Furthermore, implicit in the approach is

the assumption that outputs of the processes of innovating are directly related to

the process: that is, the activities in which innovators engage and the model of

their engagement, influence the resultant outcome. However, this relationship is

far from clearly established in the literature other than to suggest that some types

of temporal and sequential activities are related to innovation novelty (King,

1992). The argument that output and process are related has theoretical and

practical implications. Empirical works establishing that different outputs of

innovation are related to different dynamical processes can be useful in

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developing our understanding of innovation, particularly if developed within a

framework that will permit comparisons across future studies. Further, there is a

practical application in helping organizational leaders understand the

requirements of their innovating systems. Output performance research focuses

intently on the role of novelty or newness as a factor of success, although results

are not completely shared (Avlonitis et al., 2001; Goffin and Szwejczeski, 2001;

Kleinschmidt and Cooper, 1991; Tidd, 2001). Finally, according to a value based

approach (Neely et al., 2002), superior innovation performances mean major

value created for company’s key stakeholders.

4 The IC-based innovation and change management program of Natuzzi Group

Natuzzi Group is the a world leader in sofa forniture based across Basilicata and

Puglia in South Italy. Its ability to link handcraft made products and furnitures

solutions with a capacity to manage international markets and an effective and

progressing retail strategy let to became the fastest growing and first global

brand in its industry. Natuzzi Group was selected as a good case-example of the

innovation capability model presented in this paper. The Group has sistematically

placed innovation at the core of their business. At its heart, Natuzzi Group is

essentially a case-study that show how a company operating in a low-tech

industry can effectively develop an innovation capability exploiting successfully

its intellectual capital. Natuzzi Group is actually involved in a deep change

management program grounding and strictly involving the costruction and the

development of an organizational innovation capability. It recognizes that it

cannot maintain business superiority in cost-based factors but it is necessary to

invest and nurture knowledge-intensive factors to win in the global arena. This re-

positioning is requiring relevant investments to implement a deep and trasversal

change action involving all the company’s dimensions. Following, the

interpretation and analysis of the dynamics of the Natuzzi Group’s organizational

innovation processes and the managerial actions, programs and projects defined

and implemented according to an intellectual capital perspective of innovation

are presented.

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Strategy

In order to support and renew its leadership in the sofa furniture industry, the

strategic plan of Natuzzi Group is focused to play on high-value segments of the

production and the commercialisation of furniture items. This aim determines

different changes of the traditional business model of the Group. Specifically, the

company is moving from a manufacturing-based configuration towards a

retailing-based configuration, and on the creation and consolidation of a world-

wide recognized brand in the furniture industry in order to exploit branding as

source of competitive advantage. This has determined in all the world the

creation and the effective management of 737 Natuzzi-branded stores and

galleries able to offer - in a visual merchandising perspective – different furniture

items and solutions, grouping not only sofa, but also carpets, desks, lamps,

home articles, drapers and clothes, coverings and components.

IC-based innovation sources

Investigating the main knowledge assets building the relational capital of Natuzzi

Group driving innovation capability, the following components have been

identified. They correspond with the most important relationships Natuzzi is trying

to focus and better exploit to support its innovation dynamics: relationships with

customers; relationships with suppliers; relationships with institutions. The

relationships with customers represents an important focus of Natuzzi’s

innovation process. Recognising the fundamental role of a direct link with the

final market, both for controlling and acquiring information, Natuzzi managers are

restructuring the distribution and selling channels by creating the Natuzzi Stores.

Getting over the traditional way of selling through a network of different and

independent buyers, that contemporaneously manage other brands, Natuzzi

Group is applying a precise strategy focused to a direct control of the distribution

channels in the most important markets in the world. At present, Natuzzi Group

owns about 737 Natuzzi Stores around the world: they are not only sell-points,

but more importantly interfaces to interact with the market; sensors to better

identify and assess signals of market demands as well as for better

understanding customers’ wants and needs. The strengthening of the

relationships with suppliers is identified as one of the key factor enabling

innovation sources. In order to better satisfy the increasing customers’ wants to

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have personalized products and to reduce the time-to-market, the main aim of

the re-design and management of the supply chains is to operate more and more

in accordance with the principles of the just in time. The expected results are the

creation of a strong network of stable, coordinated and trustful relationships with

suppliers, more and more selected on the basis of their specialisation, flexibility,

and reliability, in terms of regularity of the supplying and quality of components

and services. As regards the relationships with institutions, they are trying to

develop more intensive, structured and coordinated networks with the education

and training system as well with Universities and research centres able to drive

more effectively the research activities’ insights towards the company’s needs, in

terms of benefits and results. This attention is also due to the need to educate,

attract and retain talented people able to successfully cover organizational roles

within the Group. A further key aspect of the change management program is the

relevance provided to the human capital and to the maintenance of high-potential

and/or high-performance human resources, through the reinforcement of the

particular and positive aspects of the personality of each employee, i.e. attitudes,

leadership and positive behaviors, besides the technical competences. Human

resources are considered by Natuzzi as fundamental ‘pillars’ to sustain

innovation dynamics. For this reason, the company is strongly involved in a

renewal and development of the “managerial” competences of all the personnel

and is trying to define the first Competence Model of the whole Natuzzi Group.

Innovation Capacity

The change management program that Natuzzi Group is carrying on, and

particularly the attempts to have a re-positioning in sofa and furniture higher

market segments, is determining the general need to update the managerial

models and tools, through the renewal of the “management tool box”, or in other

terms, of the core competences and capabilities in order to better plan, govern

and control company’s performances. Specifically, Natuzzi Group’s innovation

capacity is centred on the empowerment of CRM with business intelligence

solutions. They feel the need to build a more solid and structured interface with

the final markets, able to collect more effectively information and wants and

needs of the real and potential customers and to commercially translate them

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into successful products. Moreover, they are involved in finding better solutions

for the market analysis, and in particular about the forecasting of customers’

behaviors. It determines also attention paid on resources and tools for the

competitive benchmarking, in order to analyse differences and analogies with the

own issues to face as well as potential shared solutions, and a review of the

traditional marketing competences and capability of the Group towards a brand-

driven and “experiential” marketing. It involves the need to better nurture the

competences and the capabilities about the management and the coordination of

the stores and galleries network around the world, in terms of an effective

creation and sharing of know-how and high qualitative standard of services

provided.

Innovation Processes

As regards innovation processes, Natuzzi Group is focalising on a) the re-

thinking of the process of New Product Development (NPD) as well as of the

related technologies, such as software and tools for the performance

management of the NPD, b) the re-enforcement of the category management

and customers profiling activities finalized to a better translation and

contextualization of new ideas and projects towards single or groups of

customers and markets, c) the exploration to produce eco-compatible products

and the environmental certification of the whole sofa furniture supply-chains, d)

the improvement of the demand planning structure, through a more and more

coordination between market forecasting and company’s productive capacity,

and the related logistic activities, e) the productive processes, in terms of finding

new robo-mechatronic solutions able to help to work better, eliminating the more

repetitive and work-intensive manual operations, and reducing costs through, for

example, investments in automatic cutting machines and storage solutions

Innovation results

The change management program and the related innovation dynamics that

Natuzzi Group is developing are still in progress and innovation results are not so

easy to define and assess. However, the expected results are fundamentally

focused on the innovation product enriched by knowledge-intensive factors able

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to build more and more an “intelligent” product: this idea is fundamentally based

on the fact that actually customer wants more and more products not only able to

satisfy needs strictly related to the functional nature of the product but also a

product able to successfully and likely link with other home products,

environmental-caring and reflecting new metaphor and significances of the

concept of living and related life-style.

5 Final remarks

This paper has argued - both from the literature and the practice - that innovation

capability can be considered to have main pillars, namely strategy, innovation

sources, innovation capacity, innovation processes and innovation results. It is

proposed that organizations that consciously and explicit develop and invest in

these aspects of innovation capability, individually or collectively, have a higher

likelihood of achieving sustainable innovation outcomes as the engine of their

business performance. Moreover, this contribution has highlighted the need for

further rigorous investigation of innovation and its antecedent variables and

illustrated the importance of adopting a holistic company-wide approach to the

management of innovation through a better identification and exploitation of the

intellectual capital of the companies. However, further research should be

directed at identifying and refing measures for different forms of innovation

capability.

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